Houston, we have a problem…

The US appeared to rachet up its tit-for-tat proxy cold war with China overnight, unexpectedly ordering the closure of China’s Houston consulate. The decision wrong-footed equity markets, but they quickly regained their poise after Tesla’s better than expected results. Currency markets completely ignored the announcement, with the US dollar sell-off continuing, albeit at a less frenzied pace from the previous session. Only this morning has some fall-out been noticed, with both CNY and CNH weakening after a stronger USD/CNY fix.

Overall, the announcement is not a game-changer in the medium to longer-term. Financial markets have for some time, been building up herd immunity to constant quarrels of the two school-yard bullies.

Singapore’s inflation data is released this morning at 1130 SGT. Inflation is expected to remain negative at -0.55% YoY. The number is a known unknown though, with the City-state’s economy already slowing before Covid-19 arrived. The ensuing circuit breaker lockdowns have holed economic activity and local consumption below the waterline. Singapore’s inflation will remain non-existent for the rest of the year.

Most attention will be focused this evening on the weekly US Initial and Continuing Jobless Claims. Initial Jobless Claims remains stubbornly stuck around 1.3 million, with Continuing Claims around 17 million. Another roughly 14 million individuals that aren’t eligible for state benefits remain on support from the CARES Act. A spike in jobless claims this evening will give new urgency to congressional negotiations to renew the programme which expires this week. Elections are not far away, and markets have not really priced in the second dip in activity as the pandemic rages across the US. A weak number has the potential to take the froth of US stock markets temporarily as reality bites.

Asia looks set to consolidate today with Japan on holiday today and tomorrow, reducing volumes and liquidity. In the bigger picture, short of a severe geopolitical escalation between the US and China, or an end-of-days jobless print this evening, the underlying buy-everything globally recovery trade looks set to remain on course for the rest of the week.

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